Who will be poorer because of yesterday’s benefit uprating vote?

Last night the Welfare Uprating Bill passed its second reading. There will be other votes, but the pitiful size of the government rebellion (as Mark Ferguson has pointed out, it was confined to 4 Liberal Democrats with seats on Labour’s target list) means that the math is not on the side of the angels. If this Bill becomes law we can expect:

A majority of the cuts to hit the working poor

More people in poverty

Lower incomes for those who are poor

Increased inequality

Children to be hardest hit

Women to be hit harder than men

The essence of the Government’s case that the Bill is fair is in this advert being pushed in marginal constituencies:

Who do you think this government should be giving more support to? Hardworking families … or people who won’t work?

There’s two ways in which this is wrong. The Opposition has done a very good job emphasising the fact that the 1 per cent cap on cost-of-living increases for benefits will apply to in-work benefits as well as benefits for unemployed people. This means that 60 per cent of the cuts will hit working families, just 40 per cent will hit families where no-one has a job.

The other element of this case is that people who don’t have jobs “won’t work”. This plays to the fact, revealed by our poll, that the less people know about social security, the more likely they are to have hostile attitudes to benefits and the more likely they are to support the Bill. In my view, the best response is simply to look at what has been happening to unemployment over the past five years. For one thing, unemployment is 900,000 higher than it was on the eve of the recession: it would beggar belief to claim that this was because nearly a million strivers had become shirkers. It makes far more sense to believe that the vast majority of unemployed people are those who haven’t been able to get work, not those who won’t. The fact that there are still more than five unemployed people chasing every job vacancy underlines this point.

The other argument from fairness that is used to support the Bill is that people in work are seeing their pay cut in real terms, so it isn’t fair for people out of work to be protected from inflation. Certainly, unions agree that falling real wages help explain our economic predicament (Duncan has written especially important posts about this) but this is an argument for real wage increases, not to cut benefits. As Nigel has pointed out, the last few years are exceptional: over the long term benefits have fallen far behind wages; in 1979, Unemployment Benefit was worth 22 per cent of the average wage, today it is worth about half that.

At the last minute, the Government published an assessment of the impact of the Welfare Reform Bill. It breaks down the impact by income decile and the results are damning:

In cash terms, the heaviest impact is on the bottom three deciles, the lightest on the top half; in terms of per centage impact, the hardest burden falls on the poorest decile but in the top half the impact is less than half as severe. Almost 50 per cent of those affected – 4.5 million – are in the bottom three deciles but for the top three deciles the figure is just one in ten. But the most devastating point of all is not detailed in this chart:

In the bottom three deciles, 45 per cent of people will be worse off

In the middle four deciles, 32 per cent will be worse off

In the top three deciles 10 per cent will be worse off.

This means that some people will fall into poverty and others who are already poor will sink even further. And it will be child poverty that will increase most, because families with children (especially lone parent families) are going to be worse hit than any other type:

86 per cent of families with children (and 95 per cent of lone parent families) will be worse off, compared with 17 per cent of families without children. Given that shocking figure for lone parents, it will come as no surprise that women (33 per cent worse off) are harder hit than men (29 per cent) but even among lone parents, research for the Women’s Budget Group by Howard Reed reveals that lone mothers will be hit harder (losing an average £9.32) than lone fathers (losing an average £5.85). In addition, 340,000 women will be affected by the fact that the Bill also applies to Statutory Maternity Pay and Maternity Allowance.

The government has made a great fuss about excluding disability benefits from the Bill but disabled people (34 per cent worse off) will still be hit harder than non-disabled people (27 per cent).

All of this might be bearable if poorer people faced lower inflation than richer, but the opposite is the case. Last year the Institute for Fiscal Studies revealed that the prices of goods and services consumed by lower income groups have been rising faster than those consumed by richer groups for a decade and that this process has accelerated since the recession:

The poorest fifth of households faced an average annual inflation rate of 4.3% between 2008 and 2010, whilst the richest fifth experienced a rate of just 2.7% a year over the same period.

Finally, the fact that poorer groups will be hit harder than richer will inevitably mean that inequality will increase.

Last night, someone emailed me “gosh, what a depressing evening.” I think that just about sums it up.

Written by Richard Exell

I am the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues, including the debates about the European social model and labour market flexibility. I also represent the TUC on the Industrial Injuries Advisory C…

2 Responses to Who will be poorer because of yesterday’s benefit uprating vote?

I regret to tell you that you appear to have fallen for the government lie that disability benefits are excluded from the cap.

ESA is paid to disabled people too ill to work and is affected by this bill.
People claiming it come in two groups: those who are currently too sick to work but are expected to recover some time in the future (possibly years) and those never expected to work again.
Those in the first group will bear the full brunt of the bill and are subject to the 1% cap.
Those in the second group have partial protection and are subject to a 1.4% cap, still well below inflation.

The claim that disability benefits are exempt is unequivocally untrue. 991,000 disabled people classed as unfit to work will see their benefits capped below inflation for the next 3 years. It is a disgrace that this bill was passed under false pretenses.